Proton and the Indian automotive industry

While reading the NST sometime last week, I spotted this column by RehmanRashid, on the breakdown of the Proton and Volkswagen talks. It was a very pro-Proton column, but there was this one paragraph…

And then there’s India, home of Mahindra, Maruti, Bajaj and the Ambassador – and a 300 million-strong middle class with fewer than 15 cars per 1,000 people and 10,000km of new toll roads being built. It’s easy to imagine rebadged Perdanas, Gen.2s and Personas in New Delhi, Chennai and Mumbai. Volkswagen or GM can’t build a car for under RM20,000 to match any of them.

Sadly, neither can Proton… not in it’s current state and not for a long time. And neither can many Indian manufacturers! While it’s true that Volkswagen and GM are having troubles building a cheap car at those kind of prices (perhaps why Volkswagen was interested in any kind of tie-up with us at all to begin with, some say Volkswagen wanted the upcoming New Proton Saga to be its new cheapest car positioned under the Volkswagen Fox), I don’t think the Perdana, the GEN2 and the Persona can be produced and sold in India for under RM20,000 either. One only needs to look at the prices of those cars in our local market to know.

So let’s jump back to reality abit shall we? Everyone who cares about the automotive industry, or has a responsibility to say something about the national concern of the week has commented on the Proton-Volkswagen talks, and all of them – including the big man Syed Zainal himself – have been saying China and India are integral parts of Proton’s turn-around plans.

Proton has already made some in-roads in the Chinese market – a rebadging deal with Jinhua Youngman. An interview with Syed Zainal in StarBiz reveals how that deal came about – Jinhua Youngman (a Chinese coach and truck maker) originally went to Lotus and asked them to design a car for them. It was suggested that Jinhua do a badge engineering deal with Proton instead, since the cars were already there. It seems Jinhua Youngman has already managed 1,500 bookings before the car is launched.

But India is a market in which Proton does not have a presence in yet. Is India a perfect match for Proton and the models it has? Rather than just imagine… let’s take an analytical look at the situation in the Indian market.

INDIA: Current Industry Sales Figures and Growth Potential

India has only 12 motor vehicles per 1000 persons, whereas China has 10 and Malaysia has a staggering 641! That makes us the 3rd most saturated country in the world behind the United States (765) and Luxembourg (686). In comparison, Japan has 543 and the United Kingdom has 426. [1]

Admittedly, the term “motor vehicles” also include two wheelers and not just passenger cars, but this is also the case for India. For Financial Year 06-07, 77% of India’s total industry volume comprised of two-wheelers. The remaining comprised of 1,076,408 passenger cars (14%), 220,199 utility vehicles and 83,091 MPVs. This is a huge amount of vehicles, and the 14% figure only stands to grow as many Indians slowly graduate from two wheelers to cars.

The potential is huge considering as India’s GDP goes up, the market for motor vehicles will increase tremendously. According to Global Economics Paper No. 99 by Goldman Sachs [4], China’s GDP would be exceeded Germany by this year, and Japan by 2015 while India would do the same by 2020 and 2030 respectively. Emerging markets that are considered “old news” in the automotive industry include Brazil, Russia and China. These markets are expected to decline in growth from 2015 onwards, while India is expected to continue showing stable growth. [Source]

INDIA: Penetration Potential and Government Policies

The Indian automotive industry is seen to be “friendlier” as compared to the China. According to a Japanese analyst source, many Japanese vendors are now looking for an “India Plan”. More and more are turning away from China because of cases like the much publicized GM vs SAIC legal case over the Chery QQ, allegedly a clone of the Chevrolet Spark.

The Indian government also has initiatives like the National Highways Development Project (NHDP), and has committed RM 274 billion to the NHDP under the 11th Five-Year Plan. Malaysian companies like UEM and IJM are already in India, working on these highways, roads and flyovers. A clear sign that India is serious about improving its country’s transportation.

Of course, the highways are no use without motor vehicles, and for that India has a clear “Automotive Mission Plan” that covers the years 2006 to 2016. This plan was prepared by the Ministry of Heavy Industries and Public Enterprises of the Government of India and outlines automotive industry investments of up to US$40 billion (RM 135 bilion) over the 10 years. The plan also focuses on exprts, with a 25-point plan. While obviously requiring more consistency and notice period before changes are made (manufacturers are asking for a minimum of 2 years before and major alterations are made), the plan gives investors a lot of confidence. There will not likely be any sudden random changes in policies, something that are unfortunately getting familiar with.

From a Malaysian perspective, the legal system could possibly be easier to understand as Malaysia and India were both former British colonies and are still Commonwealth members. Communication would also be easier, in English if the Malaysian/Indian accents dont distort discussions and negotiations. Lastly, as is Japan, Australia and New Zealand, India is a right-hand-drive country whereas China is LHD. This means less re-engineering cost for the new market.

INDIA: The Big Players

Sales Matrix – Indian Passenger Cars for August 2007

No

Model

Sales

Delhi Price (lakh)

Length

1

Suzuki Alto

17,816

2.59~3.13

3495

2

Suzuki Wagon R

11,748

3.56~4.04

3520

3

Hyundai Santro

11,699

2.94~4.59

3565

4

Tata Indica

11,396

2.75~4.58

3675

5

Suzuki Omni

7,793

2.45~2.47

3370

6

Suzuki Swift

7,576

4.36~5.56

3695

7

Suzuki M800

5,480

2.16~2.38

3335

8

Suzuki Zen Estilo

4,596

3.52~4.07

3495

9

Toyota Innova

3,910

8.16~11.35

4555

10

Mahindra Scorpio

3,418

8.07~9.54

4325

Source: Autocar India, October 2007

Above are the sales charts for the Indian passenger car market in August 2007 alone. As you can see, Maruti Suzuki India dominates the Indian market with their Suzuki-badged cars, and the Maruti-Suzuki M800 is just about the only car that is priced under RM20,000 (Rs 2.16 lakh is about RM18,500). Yet it is not the top selling model, which shows that the Indian market is maturing – the 1983 Suzuki M800 is OLD and no one wants to be stuck with a stone age car. They want something fairly modern, and stylish even, but being economical in terms of both fuel consumption and initial purchase cost plays a huge factor.

What Is The Ideal Indian Car?

Like I said, fuel economy and initial purchase cost are huge factors for the current Indian car buyer. Petrol in India costs 49.49 rupees (RM4.07) per litre, and diesel costs 32.45 rupees (RM2.78) per litre. As evident from the top 10 sales list, except for number 9 and 10 which is an MPV and a 4X4 respectively, India needs small cars. It would also be ideal if the car had a diesel powertrain, especially if you want to introduce a larger sedan-bodied model. A diesel variant is a must have if Proton were to enter the Indian market, and from what I hear there are certain Proton prototypes with third party-sourced turbodiesel units already. Manual transmission is a must as Indian motorists seem to want to save every single drop of fuel they can.

The Best Way To Enter India

The obvious way is to tie-up with a company that already has a nationwide sales and service network in India, and a gap in the company’s product line-up which allows Proton models to be slotted in. This will provide Proton a quick entry into India.

Maruti Suzuki is out as they have their own brand to run. Tata may be a good choice, but their mainstay is commercial vehicles, although their Tata 1-lakh car and 2008 Indicar/Indigo plans are interesting, as is their relationship with Fiat. Backtracking to the bit about car prices, 1-lakh rupees is about RM8,563.00, but now it seems the car might end up being 1.25 lakh instead (RM10,700). Both Hyundai and Suzuki are also working on similiar projects. Anyway, Tata has 11 variants of the Tata Indica alone, not including the Indigo, so there is definitely no room for Proton in the Tata stable.

Mahindra looks to be a perfect choice. Yes, they have a relationship with Renault to sell the Renault Logan in India, but many who’ve seen the vehicle says it feels too cheap and is put together too cheaply – this is not really in tune with maturing Indian customer tastes. The Logan’s launch in India also did not go as well as expected – not enough ready stock at launch, too high of a booking deposit, slow production, expensive diesel option, and limited variants. [Source]

Business Times reported back in April 2006 that Proton was in talks with Mahindra. In more recent news, Syed Zainal reveals in the StarBiz centerspread interview that Proton is now talking with a company that is currently in the tractors and 4X4 segment but wants to get into passenger cars. I strongly believe this could be Mahindra. Syed Zainal says the deal will be similiar to the Jinhua/Europestar deal – this could mean rebadging instead of the Proton brand being introduced there.

Where Will The Cars Come From?

CKD assembly in India is the best way to go about it because of tax/duty concerns, and the Indian partner would have a manufacturing, logistics, vendor network and system already in place. A combination of various duties – Excise, Customs, and VAT – could hike up the price of a CBU car imported into India by 60% to 100%, but for CKD pack imports it is generally about 10% only. [Source] But it’s worthwhile to note that India is currently on observer status in ASEAN [Source] – there could be a possibility of India moving to establish Free Trade Agreements with key ASEAN countries in the next few years – it already has an FTA with Thailand.

India has had an installed manufacturing capacity of 1.75 million cars annually since the year 2005, but the Total Industry Volume has not reached that amount yet, so there is plenty of capacity to locally assemble Proton cars there.

The Perfect Proton for India

Syed Zainal mentions in the StarBiz interview that Proton will be offering the BLM, the GEN.2 and the Savvy to the Indian partner. He says with the right product offerings, a car company in the Indian market could snag an estimated combined sales volume of about 200,000 units a year for 2 to 3 cars, which should be possible if one of cars gets onto the top 10 list (refer August 2007 sales table above).

India divides passenger cars into different segments, from A1 to A6. There are four Lower A2 segment cars on the top 10 list – the Suzuki Zen Estilo, the Suzuki Alto, the Suzuki Wagon R and the Hyundai Santro. India defines a Lower A2 segment car as a car between 3490mm and 3650mm in length. Then there is the Upper A2 segment which measures between 3650mm to 4000mm long – represented on the top 10 list by the Tata Indica and the Suzuki Swift. Longer than the Upper A2 segment is the Lower A3 segment, which measures between 4000mm to 4200mm and includes cars like the Ford Ikon and the Tata Indigo, but none of them are on the top 10 best seller list.

By just looking at the types of cars that are on the list, you know you need an excellent Lower A2 or Upper A2 segment contender. Proton has two cars that could fit into what India considers an A2 segment car – the Proton Savvy (3710mm) and the upcoming Proton BLM, which could fall in either the Upper A2 or Lower A3 segments.

If the BLM follows the Persona’s foot steps, it will end up being a rather decent car. I believe if the kinks are ironed out of the Campro’s strange torque curve (through the variable intake module perhaps?), the BLM and a Campro-equipped Savvy could be better cars than cars like the Hyundai Santro (we know this car as the Atos here in Malaysia). Proton has cars with modern styling and up to date interiors. What we don’t have right now is a diesel – one of the lasts bit of the ideal recipe.

Small hatchbacks in India are preferred and retain value better compared to three-box sedan cars. One reason could be because sedans in India are more expensive compared to hatchbacks on initial cost – the opposite of what’s happening in Malaysia and around the world where hatchbacks are seen as a sporty lifestyle choice and command a higher price – just look at the Honda City vs the Honda Jazz here in Malaysia. The other factor is the fact that a smaller hatchback is simply preferred in the very busy streets of Indian towns. A hatch simply takes up less street real estate and parking space.

But this doesn’t mean a small sedan will not work in India. For a case study, we can have a look at the Suzuki Esteem 1.3L, which is about 4095mm x 1575mm x 1395mm in dimension. According to the little guesswork I did which I demonstrated below, the Proton BLM should be nearly equal to the Suzuki Esteem in length – an estimated 3975mm to 4050mm length – (to make up for the angle in the photo) so it could either be an Upper A2 car or a Lower A3 car.

You can try doing your own guess-timation calculation on how long the BLM is – the pixel values above will not tally if you measure the image because I did it with a larger image then resized it down to fit this site. Plus the image is actually taken at an angle so it would not be accurate. I assumed the BLM would use the Savvy’s platform and not an extended one, so the same wheelbase would apply.

It could be that the Suzuki Esteem is not doing that well in India because it appears to be an old workhorse, and is not so palatable compared to the newer Wagon R, Zen Estilo and other “newer” models. The BLM will offer a “fresher” Lower A3 sedan choice.

So to answer the question – what is the perfect Proton for India? In this case, the answer would be the Savvy and the BLM, and priority should be to get the cars locally assembled in India as fast as possible.

But the danger with this could be having the Proton or Proton-badged marque be associated with cheap cars forever – a problem that Maruti Suzuki is facing right now. Competitors like Honda and Toyota took a different approach – enter with the more expensive models to build the brand, then move downmarket with cheaper offerings.

Price point is also something to ponder about – assuming the BLM is RM32,000 here in Malaysia, that would translate to about 3.7 lakh rupees. Seems pricey considering most of the models on the top 10 list start from under 3.0 lakh rupees. But then again as I’ve mentioned before it is normal for sedans to have a premium over hatches in India.

Last but not least, with the possibility of India-ASEAN FTA’s being put into place in the not-too-distant future, it would be very good if Proton develops vendors for specific items in India, to cater to regional or global (if I could be so bold as to use that word) Proton production. It would meet the spirit of the CEPT where countries agree to lower import duties while exchanging a roughly equal value volume of components. An added bonus, to take a page from what the Japanese manufacturers like Toyota and Honda are doing, is to use these ‘roots’ in each country to show evidence to the government that the manufacturer is not just there to make a quick buck but has developed local vendors and is serious in creating export opportunities for the host country and/or state.

A wishlist for India-bound Protons: models must have retractable electric wing mirrors because of the danger of two wheelers accidentally clipping the wing mirrors off. The wing mirror mount should also allow for the mirror to detach easily when forced to break without damaging the car body. Ideally the car body could employ a similiar material to the Nissan X-Trail’s fenders which are dent-proof when it comes to little bumps and knocks. This material could be used in key body parts like fenders, like on the X-Trail. Again, something to cope with the huge amount of two-wheelers there. That way Proton (or Mahindra perhaps, if a rebadging deal is done) can claim the new car is designed for Indian roads. ;)

After dabbling for years in the IT industry, Paul Tan initially began this site as a general blog covering various topics of personal interest. With an increasing number of readers paying rapt attention to the motoring stories, one thing led to another and the rest, as they say, is history. An avid electronic gadget aficionado as well as big-time coffee lover, he's also the executive producer of the Driven motoring TV programme.